Bhushan Steel Q3FY12 Earnings Review
Chandrakant / 31 Jan 2012
Bhushan Steel reports a 24 per cent (yoy) rise in net sales on the back of higher sales volume and flat realisation in the industry. Despite an increase in the raw material cost, the operating profit has also grown by 34 per cent on a YoY basis.
Bhushan Steel has come out with its Q3 numbers and one can see that it has posted a decent performance during the quarter both in topline as well as the bottomline. The net sales of the company stood at Rs 2,407.02 crore, higher by 24 per cent as compared to the previous year same quarter due to higher sales volume and flat realisation in the industry. The steel prices during the quarter remained flat as against Q2FY12.
|
Financial perforamance Q3FY12 | |||||
|---|---|---|---|---|---|
| Particulars (Rs Cr) | Dec ' 11 | Dec ' 10 | YoY (%) | Sep '11 | QoQ (%) |
| Sales | 2,407.1 | 1,942.7 | 23.9 | 2,465.4 | -2.4 |
| Raw Material | 1,511.1 | 874.5 | 72.8 | 1,015.3 | 48.8 |
| Operating Profit | 724.0 | 537.6 | 34.7 | 721.1 | 0.4 |
| Interest | 229.0 | 102.0 | 124.6 | 302.0 | -24.1 |
| Net Profit / Loss | 276.6 | 280.4 | -1.3 | 206.9 | 33.7 |
| OPM(%) | 30.1 | 27.7 | 8.7 | 29.2 | 2.8 |
| NPM(%) | 11.4 | 14.4 | -20.3 | 8.4 | 36.4 |
The operating profit, despite an increase in the raw material cost (up by 72 per cent YoY), has grown by 34 per cent on a YoY basis to Rs 724 crore. The higher raw material cost was largely on account of the higher coking coal cost which remained high despite a fall in the coking coal prices in the international market due to 7 per cent depreciation in the rupee which negated all the benefits. The coking coal price has fallen down to USD 235 from USD 265 per tonne in the last three months.
Also, due to the higher interest cost and higher depreciation due to the commissioning of a new project, the net profit of the company during the quarter declined by 1.33 per cent on a YoY basis to Rs 276 crore. However, if we look at the QoQ performance, due to decent growth in volumes and better realisation as compared to the previous quarter, the operating margin improved by 100 bps to 30.07 per cent while the net profit margin improved by 200 bps to 11.43 per cent. Meanwhile, the net sales of the company were marginally down by 2.36 per cent.
In conclusion we believe that the performance of the company, in spite of the various challenges, has remained quiet good. The jump in sales volume on a YoY basis in the face of a slowdown in consumption and improvement in the EBITDA margin on a QoQ basis is appreciable. Moreover, the macro environment is also looking quite stable right now. Inflation has cooled down a bit, the RBI has cut the CRR rate by 50 bps to 5.5 per cent to infuse liquidity in the economy, the rupee has appreciated to the 49.50 level against the dollar and we have also witnessed some pick-up in demand in the steel sector over the last few months. All these factors are currently in favour of the industry right now.
At its current price of Rs 352 and with annualised EPS of Rs 46.22, the scrip is trading at an EPS multiple of 7.61x. The current valuation looks attractive as it has fallen by 28 per cent since January 3, 2011. However, we are still bearish on the sector due to some uncertainty in iron ore mining and the expected fall in steel prices in the ongoing quarter. Further, 32 per cent of the promoters’ holding is pledged and this is one of the major risks to the company’s financials and its fund-raising plan. Therefore our recommendation to investors is to stay away from the scrip.
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